EXPLANATORY STATEMENT
STATUTORY RULES 1982 NO. 128
ISSUED BY THE AUTHORITY OF THE TREASURER
The purpose of these regulations is to implement arrangements for employers to make allowance under the PAYE (pay-as-you-earn) scheme from July 1982 for home loan interest payments of employees.
Introductory Note
The changes made by these regulations to existing PAYE arrangements follow amendments of the Income Tax Assessment Act 1936 (“the Act”) by the Income Tax Assessment Amendment Act (No.2) 1982 (Act No. 38 of 1982) assented to on 2 June 1982. These amendments - Subdivision AA of Division 17 of Part III - provide for a rebate of tax, in end-of-year assessments, for certain home loan interest payments made on or after 1 July 1982. Broadly, the rebate is available to a resident taxpayer in respect of his or her sole or principal residence situated in Australia during the first 5 years of owner-occupancy of the residence where that owner-occupancy commences on or after 1 July 1977 and before 1 July 1985. Under the new PAYE arrangements, a reduction will be allowed in deductions from salary or wages paid in respect of a week or part of a week for the expected rebate for home loan interest.
The tax rebate applies to interest paid by a resident taxpayer on loan moneys used to purchase, construct or extend a house, flat or home unit that he or she occupies as a sole or principal residence in Australia and which he or she owns or partly owns.
The 5 year period of owner-occupancy is measured from the date the person first occupied a sole or principal residence in Australia in which he or she had ownership rights. The rebate is 32 cents in the dollar of interest paid, subject to an upper limit, but cannot exceed the tax otherwise payable on assessment.
Generally speaking, the basic upper limit of the rebate is $500 per dwelling in the first year of owner-occupancy and reduces by $ 100 per year for each of the succeeding four years. The limit is increased by $200 in any year in which a dependent child or dependent student lives with the taxpayer in the dwelling for which the interest is paid.
If, during the period of 5 years calculated from the time the taxpayer first occupies as owner a sole or principal residence, the taxpayer acquires another sole or principal residence, the interest in relation to that
latter residence is eligible for the rebate, but the upper limit of the rebate continues to be calculated from the date of occupation of the first sole or principal residence.
Interest on money borrowed to acquire a caravan, or a holiday flat or cottage, is not eligible for the rebate. Nor is interest on loans for the purpose of constructing a garage, swimming pool, fence, etc., or to purchase furniture, carpets or other furnishings. Where a loan is used to acquire vacant land, interest paid in respect of the loan is first rebatable in the end-of-year assessment in respect of the income year in which a dwelling erected on the land is first used by the taxpayer as a sole or principal residence to the extent to which the interest accrues after occupation of the dwelling.
Because of the nature of the rebate for home loan interest, it is not practicable to make provision in the existing PAYE scheme for interest payments. It will be necessary for each employee who considers entitlement to a tax rebate for home loan interest payments will exist for the year of income and desires to reflect this rebate entitlement in his or her weekly or fortnightly tax instalments to lodge a declaration with his or her employer so that the appropriate reduction may be made from tax instalment deductions otherwise applicable.
An employee will not, however, be entitled to a reduction in tax instalments made by an employer from his or her salary or wages unless a declaration which allows the general exemption claim to be taken into account in calculating tax instalments has also been lodged with that employer.
As an alternative to lodging a home loan interest declaration with his or her employer, an employee who for personal reasons does not wish to disclose relevant details to the employer or who is likely to have several employers during the year may lodge the declaration with the Commissioner of Taxation. The Commissioner will determine the appropriate reduction to be made in tax instalments and issue a certificate upon which an employer will be authorised to act in making the reduction in tax instalments.
Further details of the new PAYE arrangements are provided in the explanatory notes which follow.
Regulation 1 will insert a new Subdivision - Subdivision AA - in Division 2 of Part VI of the Income
Tax Regulations. The new Subdivision comprises regulations 54DB to 544DL which are explained in detail in the following notes.
Regulation 54DB: Interpretation
Sub-regulation (1) of regulation 54DB defines certain terms used in new Subdivision AA.
“dwelling” has the same meaning as in section 159ZA of the Act and means, broadly, a unit of residential accommodation constituted by or contained in a building in Australia.
“eligible dependant” in relation to an employee has the same meaning as in section 159ZH of the Act. An eligible dependant is a person (not being the spouse of the employee) who, at a particular time, is a child under 16 years of age or is a full-time student, who is a dependant of the employee for the purposes of the Act and whose home is the employee’s sole or principal residence. That particular dwelling must be one the loan interest on which will attract the rebate and the employee must be an “eligible occupier” of that residence.
“eligible occupier” has the same meaning as in section 159ZF of the Act. Section 159ZF imposes 3 tests to determine whether a person is an eligible occupier of a dwelling at any particular time. The tests are that the person -
(a) occupy the dwelling as his or her sole or principal residence;
(b) have a relevant interest in the dwelling (meaning, broadly, that he or she has ownership rights of one kind or another in the dwelling); and
(c) does not have a disentitling spouse, i.e., a spouse who more than 5 years previously had been an owner/occupier of a sole or principal residence. The definition of “spouse” for home loan rebate purposes has an extended meaning and includes a partner in a de-facto marriage relationship.
“estimated home loan interest”, in relation to a home loan included in a declaration, means the
amount of interest on the loan which the employee expects will qualify for the rebate during the year to which the home loan interest declaration relates.
“first occupation date” has the same meaning as in section 159ZA of the Act. It is the date on which an employee first occupied, as his or her sole or principal residence, a dwelling in Australia in which he or she had a relevant interest. This date is commencement of the 5 year period of eligibility for the home loan interest rebate.
“home loan”, in relation to an employee, means moneys lent to the employee, or to the employee and another person, that are, by virtue of sections 159ZD and 159ZE of the Act, taken as applied by the employee for housing purposes connected with a dwelling. In other words, only loans that are eligible for the home loan interest rebate are to be capable of being the subject of a declaration made for PAYE purposes;
“lender” means the lender of moneys to an employee, or to an employee and another person, and includes the party who corresponds with the lender in the case of a transaction which is deemed by section 159ZE of the Act to be a loan of moneys to the employee or to the employee and another person. This extended definition, in conjunction with proposed sub-regulation 54DB(3), is designed to ensure that the new PAYE arrangements will extend to interest payments made in respect of certain amounts that are not, strictly speaking, loans of money, e.g., where an employee pays interest together with part of the principal sum under a contract for the purchase of his home or by reason of his having taken over from the previous owner a mortgage secured on the home.
“prescribed rate of deductions” means, in effect, the existing rate of tax instalment deductions to be made, for section 221C purposes, by employers from employees’ weekly salary or wages. The prescribed rate excludes the special rate of instalment deductions under regulation 54DAAA which applies to certain lump sum payments.
Sub-regulation (2) of regulation 54DB has the effect of restricting the operation of the PAYE scheme to interest payments on home loans to purchase, construct or extend a house, flat or home unit that, at the time the
declaration is made, is owned and occupied by the employee as his sole or principal residence. The sub-regulation reflects the home loan interest rebate provisions of the Act.
Sub-regulation (3) is a drafting aid and, in conjunction with the definition of “lender” in sub-regulation (1), is designed to extend the new PAYE arrangements to interest payments made by employees under certain contracts or arrangements for the acquisition of their homes. Such interest payments attract the rebate under the Act.
Sub-regulation (4) of regulation 54DB stipulates that an employee is not to have the benefit of a reduced rate of tax instalments under the new Subdivision, unless he or she furnishes an employer with a rebate declaration claiming the general concessional rebate, a rebate for dependant(s) or a zone allowance in accordance with existing regulation 54DAC or has furnished such a declaration to the Commissioner of Taxation under regulation 54DAH.
Regulation 54DC: Furnishing of declaration and statement
Sub-regulation (1) of regulation 54DC will require an employee who desires to reduce his or her tax instalment deductions to lodge with his employer a declaration together with a statement from the lender. Alternatively, the declaration and statement may be furnished to the Commissioner. If a declaration is not furnished for PAYE purposes, the income tax rebate allowable to the employee in respect of home loan interest will still be reflected in an end-of-year assessment, but the employee will not gain the benefit of the rebate in the form of an increase in take home pay.
Sub-regulation (2) of regulation 54DC requires that the statement from the lender furnished with a declaration is to contain certain minimum information as set out in regulation 54DF. That regulation imposes a requirement on a lender to provide an employee, upon request, with details of the loan made by the lender to the employee. This sub-regulation will ensure also that a lender’s statement, which will be the basis of the employee’s estimate of interest to be paid during the ensuing financial year, contains up to date information by providing that the statement is to have been issued within 3 months of the date the declaration is furnished by the employee.
Under sub-regulation (3) an employer is required to return the current lender’s statement to an employee upon the cessation of the employee’s employment. This will obviate the need for the employee to obtain a further lender’s statement if he or she decides to lodge another declaration with a subsequent employer within 3 months of the date of the statement.
Sub-regulation (4) is complementary to sub-regulation 54DB(4) which, as explained earlier, specifies that an employee is not to be entitled under the Subdivision to a reduction in the prescribed rate of tax Instalment deductions unless he or she lodges a declaration under regulation 54DAC with an employer or under regulation 54DAH with the Commissioner. Sub-regulation (4) adds to that requirement the requirement that an employee who is employed by more than one employer, and who furnishes a declaration under regulation 54DAC to one of those employers, is to furnish the home loan interest declaration to the same employer.
Regulation 54DD: Furnishing of further declaration
The purpose of this regulation is to provide for a further declaration to be lodged where there has been a change in an employee’s circumstances during a financial year since lodging an earlier declaration. This is necessary to ensure that the appropriate adjustment for the changed circumstances is reflected in tax instalment deductions made from salary or wages paid to the employee during the remainder of the financial year.
By sub-regulation (1), where an employee ceases to have an eligible dependant (paragraph (a)), to be an eligible occupier of the dwelling (paragraph (b)), to be liable to make home loan repayments (paragraph (c)), or, where the employee pays interest jointly with another person, the proportion of interest payable by the other person increases (paragraph (d)), the employee is required to furnish a further declaration to his or her employer or to the Commissioner or, if the employee considers that he or she is no longer entitled to a reduction in tax instalments in respect of home loan interest, the employee must give notification in writing to the employer or to the Commissioner. The further declaration or notification must be given by the employee within fourteen days of becoming aware of the changed circumstances. An employee is not required to lodge a lender’s statement with a further declaration. It should be noted that a change in the rate of interest payable on a loan does not require or entitle an employee to lodge a further declaration.
Sub-regulation (2) allows an employee to lodge a further declaration where he or she becomes entitled during a financial year to an additional rebate for an eligible dependant or where there is an increase in the proportion of interest payable by the employee in respect of the dwelling. The lodgment of a further declaration will entitle the employee to a greater reduction in the tax instalment deductions.
Sub-regulation (3) will require an employee to return any certificate previously issued by the Commissioner under regulation 54DG when he or she lodges a further declaration or notification under this regulation. If the circumstances require it the Commissioner will issue another certificate under regulation 54DG taking into account the changed circumstances.
Regulation 54DE: Form of declaration
Sub-regulation (1) of regulation 54DE provides that a declaration under the Subdivision is to be in accordance with a form provided by the Commissioner, signed by the employee and dated on the day it is made. The declaration must contain certain information.
Sub-regulation (2) of regulation 54DE specifies the information that is required to be set out in a declaration. That information is:
• the financial year to which the declaration relates (paragraph (a));
• the employee’s name, occupation and residential address (paragraph (b));
• the name of the lender of the home loan to which the declaration relates; the amount of the home loan at a date within 3 months of the date the declaration is made; the rate of interest at that date and the estimated home loan interest (paragraphs (c) to (f));
• the address of the dwelling to which the declaration relates (paragraph (g));
• the address and occupation date of a dwelling first owned and used as a sole or principal residence by the employee (paragraph (h));
• the name of any other occupier of the dwelling who pays home loan interest in respect of the dwelling and the proportion so paid by that person (paragraph (i)); and
• whether or not the employee has an eligible dependant (paragraph (j)).
The information that is required by paragraphs (c), (d), (e) and (g) to be set out in the declaration is to be evidenced by a statement obtained from the lender of the relevant home loan (see following notes dealing with regulation 54DF).
Sub-regulation (3) means that the amount of the home loan outstanding and the interest on the loan shown in the declaration are to be the amount and rate applicable on the date shown in the lender’s statement under regulation 54DF. This date must be within the three months immediately before the date on which the employee lodges his request for a statement with the lender. As explained in the notes on sub-regulation 54DC(2), the declaration must be lodged within 3 months of the date of the lender’s statement.
Regulation 54DF: Form of statement
This regulation will require a lender to provide an employee upon request with information in relation to his or her home loan. The lender is to give the employee a written statement that is to be lodged by the employee in respect of each loan included in a home loan interest declaration.
Sub-regulation (1) of regulation 54DF requires the lender of a home loan to provide, when requested by the borrower, a written statement evidencing the loan. The lender is required to set out in the statement the following information:
• the name of the lender (paragraph (a));
• the name and address of the borrower (i.e., the employee) or, if the loan was made to the employee and another person, the names and addresses of the borrowers (paragraph (b));
• the address of the dwelling in connection with which the loan was made (paragraph (c)); and
• the amount of the loan outstanding at the “relevant date” (see notes on sub-regulation (2)) and the rate of interest being charged at that date (paragraphs (d) and (e)).
Sub-regulation (2) is a drafting measure which defines the “relevant date”, for the purposes of paragraphs (d) and (e) of sub-regulation (1). The relevant date is the date specified by the lender in the statement and is to be a date occurring within the three month period immediately before the date of the request from the borrower.
Provided the necessary details are shown and the statement is clearly issued by the lender, no particular form is required for this statement.
A lender who fails to provide a borrower with the prescribed statement in accordance with regulation 54DF could, under existing regulation 65, be punishable, upon conviction, by a fine of not less than $2 nor more than $40.
Regulation 54DG: Declaration and statement furnished to the Commissioner
As explained in the introductory note, an employee who does not wish to lodge a declaration with his or her employer may lodge the declaration with the Commissioner. In addition to covering the case where an employee for personal
reasons does not want to lodge a declaration with an employer, it will also apply where an employee may be employed with a number of different employers during a financial year and would avoid the necessity of lodging a separate declaration with each employer.
Where an employee lodges a declaration and statement with the Commissioner under sub-regulation 54DC(1) (or a further declaration or notification under regulation 54DD), regulation 54DG provides the authority for the Commissioner to issue to the employee a certificate specifying, for the relevant financial year, the weekly reduction in the employee’s tax instalment deductions.
Regulation 54DH: Effect of certificate
Sub-regulation (1) applies where an employee lodges with his or her employer a certificate issued by the Commissioner under regulation 54DG. The employer is required to give effect to the certificate by reducing the tax instalments otherwise applicable by the amount shown in the certificate. This reduction is only to be made if the employee is employed for a period of not less than four days in the particular week and the employer holds the certificate during the whole of that period.
Sub-regulation (2) requires a certificate lodged with an employer to be returned to the employee on request.
Regulation 54DJ: Operation of declaration or notification
This regulation contains provisions relating to the operation of a declaration furnished under new Subdivision AA.
Where a declaration and statement (sub-regulation 54DC(1)), or a further declaration or notification (regulation 54DD) are lodged by an employee with an employer, or where the Commissioner issues an employee with a certificate and the certificate is lodged with an employer (regulations 54DG and 54DH), the employer is, by this regulation, required to vary the rate of tax instalments which would otherwise be deducted from the employee’s salary or wages. The employer is given a reasonable time in which to make arrangements to vary tax instalment deductions following upon the furnishing by an employee of the appropriate document. An employer is not required to give effect to such a declaration, notification or certificate until after the payment of salary or wages next following the furnishing of the declaration, notification or certificate.
A declaration or certificate lodged with an employer is to have effect up to and including the last pay in the financial year to which the declaration relates (paragraph (c)). However, where in respect of a financial year a further certificate given by the Commissioner is lodged with the employer or where the employee has furnished a further declaration or notification, the earlier certificate or declaration will continue to have effect up to and including the first payment of salary or wages made after the date on which the further declaration, certificate or notification is furnished (paragraphs (d) and (e)).
Regulation 54DK: Rate of rebate
This regulation sets out the appropriate reduction that is to be made to an employee’s tax instalment deductions when the employee furnishes a home loan interest declaration to his or her employer.
Under sub-regulation (1) an employer is to calculate the weekly reduction in tax instalments by multiplying the employee’s estimated home loan interest for the financial year as shown in the declaration by the factor 0.00608. This calculation determines the weekly rebate for home loan interest applicable to the employee (i.e. 1.9% of the estimated annual amount) but without regard to the upper limit fixed under the Act. This amount is then compared with “the prescribed amount”, i.e. the upper limit of the rebate, also expressed on a weekly basis, determined by reference to sub-regulation (2), (3) or (4) as the case requires. The prescribed rate of tax instalment deductions is then to be reduced by the lesser of the two amounts.
Sub-regulation (2) sets out the “prescribed amount” for the purposes of sub-regulation (1) where an employee’s “first occupation date” (see earlier notes on sub-regulation 54DB(1)) occurred during the period 1 July 1977 to 30 June 1982. Paragraphs (a) to (e) deal consecutively with each of the financial years in which an employee, whose first occupation date occurred during that period, will be eligible for rebate by reference to particular columns in Table A of Schedule 4 (to be inserted by regulation 2 of the amending regulations). This gives the weekly upper limit relevant to an employee in a particular financial year having regard to the first occupation date and whether or not the employee declares an “eligible dependant” (see sub-regulation 54DB(1)) on the home loan interest declaration.
The amount shown in each column is the upper limit attributable to an employee, having regard to the income year in which the first occupation date of the employee occurred, expressed as a weekly amount by multiplying the annual limit by 1.9%
Example:
An employee (who does not have an eligible dependant) first occupied a dwelling as his sole or principal residence on 14 August 1978 and estimates that the home loan interest payable by him during the 1982-83 financial year will be $2,500. The weekly reduction in tax instalments is to be calculated thus:
$2,500 x 0.00608 = $15.20 (paragraph (a) of sub-regulation (1))
Column 2 of Table A = $3.80 (sub-paragraph (a)(i) of sub-regulation (2))
The weekly reduction in tax instalments is the lesser of the two amounts - in this case $3.80.
Sub-regulation (3) sets out the “prescribed amount” for the purposes of sub-regulation (1) where an employee’s first occupation date of a sole or principal residence occurs on or after 1 July 1982 and before 1 July 1985. In these cases, reference to Table B of Schedule 4 provides the statutory upper limit by which the employee’s weekly tax instalment deduction is to be reduced on account of expected entitlement to the home loan rebate. The relevant amount is ascertained first by selecting the period in which the first occupation date occurred (column 1 of Table B) and then reading across the Table to the columns which are applicable to the financial year in which the occupation date occurred or the year in which the appropriate anniversary of that date occurs. The selection of the particular column then depends on whether or not the employee has declared an “eligible dependant” on the declaration.
Example:
An employee with a dependent student living with him occupies a dwelling on 7 October 1982 and estimates that the home loan interest payable by him will be $2,000 in the 1982-83 financial year. The weekly reduction in tax instalments is calculated thus:
$2,000 x 0.00608 = $12.15 (paragraph (a) of sub-regulation (1))
Column 3 of Table B = $13.30 (sub-paragraph (a)(ii) of sub-regulation (3))
The weekly reduction in tax instalments is the lesser of the two amounts - in this case $12.15. This weekly reduction occurs for the balance of the financial year after 7 October 1982, that being the first occupation date of the employee.
Sub-regulation (4) applies to calculate the “prescribed amount” for the purposes of sub-regulation (1) where the home loan interest is payable jointly by the employer and another person who is also an eligible occupier of the dwelling in question. The prescribed amount available to an employee will be a proportion of the amount which would otherwise be the reduction in tax instalments available to the employee if he or she were the only eligible occupier paying interest on the home loan.
The proportion available to an employee is to be calculated by the formula RE/T.
Component R is the prescribed amount otherwise applicable to the employee under sub-regulation (2) or (3) having regard to the first occupation date of the dwelling and to the particular financial year under consideration.
Component E is the “estimated home loan interest” (defined in sub-regulation 54DB(1)). It is, in effect, the amount of rebatable interest which the employee estimates he will be required to pay during the particular financial year. Component T is the total interest on the loan or loans which the employee estimates on the declaration he and any other eligible occupier of the dwelling will be required to pay during the particular financial year.
Example:
An employee who has a dependent child living with him first occupies a dwelling on 6 August 1981 and estimates he will pay $1500, which is one-half of the interest payable during the year on loans connected with the dwelling - the balance of the interest being payable by another eligible occupier. The “prescribed amount” in the 1982-83 financial year for the purposes of sub-regulation (1) is calculated as follows:
R = $13.30 (Column 3 of Table A)
E = $1500
T = $3000
Application of the formula -
$13.30 × $1500 | = $6.65. |
$3000 |
The weekly reduction in tax instalments is $6.65.
Sub-regulation (5) is a drafting aid necessary for the correct operation of Table B of Schedule 4 in cases where the first occupation date of a dwelling occurs on 14 February in a leap year. The sub-regulation ensures that, when the first occupation date falls on such a date, the dwelling will, in accordance with section 159ZG of the Act, be deemed to have been occupied for the whole of the month of February and the upper limit of rebate determined on that basis.
Regulation 54DL: Employer to forward employees’ declarations to Deputy Commissioner
The home loan interest declaration forms to be made available to employees by the Taxation Office will contain an original and duplicate. Paragraph (a) of regulation 54 DL requires the employer to countersign the original of declarations received from employees and to forward these, within 28 days, to an office of a Deputy Commissioner of Taxation.
Paragraph (b) requires the duplicates to be forwarded by the employer to the same Deputy Commissioner within 28 days of the end of the financial year to which the declarations relate. Lenders’ statements furnished to the employer in conjunction with employees’ home loan interest declarations are to be forwarded with the duplicates.
Schedule 4
Regulation 2 inserts Schedule 4 after the Third Schedule to the Income Tax Regulations. Schedule 4 contains Tables A and B from which the appropriate upper limit of reduction in tax instalment deductions is to be determined (see notes on regulations 54DK).